Consumers May Have Cut Back in February. Here’s Why You Shouldn’t Worry

Don’t panic, but the main engine of the U.S. economy might stall in February. Consumer outlays account for more than two-thirds of total economic output, and spending data—not least the Commerce Department’s monthly report on sales at retail stores and restaurants—are closely watched by forecasters and policy makers for clues on the trajectory of the overall economy. [wsj-responsive-sandbox id = "0" ] Retail spending rose more than expected in January, despite a pullback in auto sales. But when the February retail-sales report comes out on March 15, there’s at least one reason to expect a weak reading: Tax-refund payments were delayed for millions of U.S. households claiming the earned-income tax credit or additional child tax credit. “To the extent this large group of lower-income consumers don’t get their refunds until several weeks later than previously, it is likely to be felt by retailers and could Continue reading "Consumers May Have Cut Back in February. Here’s Why You Shouldn’t Worry"

Q&A: 99-Year-Old Former IRS Commissioner Mortimer Caplin on Life and Taxes

Mortimer Caplin has been watching the drama around the Internal Revenue Service since 2013 with the perspective of someone who has seen it all before, because he has. Mr. Caplin, who will turn 100 years old in July, ran the U.S. tax agency from 1961 to 1964 before becoming a founding member of the Caplin & Drysdale law firm in Washington. [wsj-responsive-image P="//si.wsj.net/public/resources/images/BN-OG632_caplin_P_20160531181937.jpg" J="//si.wsj.net/public/resources/images/BN-OG632_caplin_J_20160531181937.jpg" M="//si.wsj.net/public/resources/images/BN-OG632_caplin_M_20160531181937.jpg" caption="Mortimer Caplin, 99, ran the Internal Revenue Service under President John F. Kennedy" credit="Richard Rubin/The Wall Street Journal" placement="Wrap" suppressEnlarge="false" ] He spoke to Real Time Economics about the IRS and how tax law has changed over time. Here are excerpts from the conversation: WSJ: When and how did you find out that you were going to be nominated? Mr. Caplin: I was teaching at the University of Virginia. I was a law professor. And I had Bob Continue reading "Q&A: 99-Year-Old Former IRS Commissioner Mortimer Caplin on Life and Taxes"

U.S. Corporate Taxes May Be 16% or 40%—It’s All How You Do the Math

What do the biggest U.S. companies actually pay in corporate taxes? Good luck figuring that out. In 2012, profitable large corporations in the U.S. paid an average tax rate of 16.1% and about one-fifth paid no taxes at all, according to a new Government Accountability Office report. “At a time when Republicans tell us that we don’t have enough money to rebuild our crumbling infrastructure or provide universal child care, maybe, just maybe we should stop allowing huge corporations to pay nothing in federal income taxes,” said Democratic presidential candidate Sen. Bernie Sanders, who asked for the study. “Corporate greed is destroying the fabric of America. It must come to an end.” But calculated a different way, those same companies paid 17.3%, or 18.5%, or 19.5%, or 21.1%, or 22% or 23% or 26.3% in taxes. Where does that data Continue reading "U.S. Corporate Taxes May Be 16% or 40%—It’s All How You Do the Math"

How Some Americans Hit the Maximum Tax-Refund Sweet Spot

Even if you’re not a tax expert, software and shady tax preparers make it incredibly easy to fiddle with the numbers until you hit the sweet spot that shows the maximum refund. 
ANDREW HARRER/BLOOMBERG
Aggressive tax planning isn’t just for the rich. A new study shows how low-income households frequently report the exact right amount of income to get the maximum refundable tax credit from the Internal Revenue Service. And they follow the tax law from year to year, adjusting their income to fit changes that Congress makes. Consider, for example, a married self-employed couple with two children. They pay payroll taxes, but make too little money to owe income taxes. Instead, they’re eligible to get tax credits designed to encourage work and help them raise children. In 2012, to get the maximum refund of about $5,070, they had to report about $16,200, which happens to be the point where Continue reading "How Some Americans Hit the Maximum Tax-Refund Sweet Spot"

Rubio and Cruz Dueled Over the VAT Tax. And the Winner Was…

Republican U.S. presidential candidate Senator Ted Cruz waves in front of rival candidate businessman Donald Trump as they stand with fellow candidates Governor John Kasich, Governor Chirs Christie, Senator Marco Rubio and Dr. Ben Carson as they pose together before the start of the Fox Business Network Republican presidential candidates debate in North Charleston, South Carolina January 14, 2016.
Chris Keane/Reuters
The Republican debate audience went to a shout-fest Thursday, and a tax symposium broke out. Senators Marco Rubio and Ted Cruz engaged in a long back-and-forth on Mr. Cruz’s tax plan, arguing over whether it was the value-added tax that conservatives have been opposing for decades. It’s a fight Mr. Rubio previewed earlier in the week in ways that made tax nerds blissful. For everyone else, this can get a bit bewildering. So here’s morning-after scorecard:
  1. Is it a VAT?
Mr. Rubio argued that Mr. Cruz’s 16% Business Continue reading "Rubio and Cruz Dueled Over the VAT Tax. And the Winner Was…"

What Happens After You Beat the IRS in an Audit

Self-employed taxpayers who got audited and came out unscathed reported less income in future years, an average of 35% lower three years after the audit, a new study says.
J. DAVID AKE/ASSOCIATED PRESS
Getting audited by the Internal Revenue Service—and losing—is devastating. You have to pay more in taxes, and, perhaps scared of a repeat defeat, you’re likely to report much more income in future years. Once bitten, twice shy. But getting audited by the IRS and winning the fight with the taxman is a completely different experience, according to a study released this week by the IRS’s National Taxpayer Advocate. Self-employed taxpayers who got audited and came out unscathed reported less income in future years, an average of 35% lower three years after the audit, the study says. Having learned where the edge is, they seem to skate closer to it. Once bitten, twice sly. “The audit process might
Continue reading "What Happens After You Beat the IRS in an Audit"

It’s Time to Focus IRS Audits on the Superrich, Inspector General Says

In fiscal 2014, for example, the IRS audited 1.5% of tax returns with incomes between $200,000 and $400,000 and 12.1% of returns with incomes above $5 million. But the tippy-top is where the money is.
J. DAVID AKE/ASSOCIATED PRESS
Is $200,000 a high income? Yes. But maybe it shouldn’t be considered one by the IRS. The Internal Revenue Service spends too much time and effort auditing people who make $200,000 to $400,000 and too little going after the very wealthiest Americans, according to an inspector general’s report released late Thursday. In response, the IRS is re-examining its decision to consider $200,000 a “high income” for auditing purposes and is looking at indexing that threshold to inflation. In an era of declining budgets, that move could let the tax agency concentrate the work of employees who specialize in auditing the complex returns of the superwealthy. The IRS audits fewer
Continue reading "It’s Time to Focus IRS Audits on the Superrich, Inspector General Says"

The GOP Debate: Taxes, Taxes and Fewer Taxes

One of the most compelling exchanges of the Republican debate in Milwaukee on Tuesday was the dispute over Sen. Marco Rubio’s tax plan.
SCOTT OLSON/GETTY IMAGES
Tuesday night’s Republican debate was about taxes, taxes and fewer taxes. Here are five highlights:

1. Marco Rubio vs. Rand Paul

One of the most compelling exchanges between candidates was the dispute over Mr. Rubio’s tax plan, which calls for an additional $2,500 child tax credit that would be refundable against income and payroll taxes. Mr. Rubio’s child credit is the centerpiece of the so-called “reformicon” agenda, which de-emphasizes reductions in the top tax rate on wage income in favor of devoting tax breaks to assisting families. Indeed, his proposed top income tax rate of 35% is the highest in the Republican field and is just 4.6 percentage points below today’s top rate. Mr. Rubio pitches the child tax credit as a pro-family Continue reading "The GOP Debate: Taxes, Taxes and Fewer Taxes"

Flat Wages? Here’s Your Consolation Prize From the IRS

Many tax thresholds are tied to inflation, and that can cut both ways for taxpayers, depending on individual circumstances. 
KAREN BLEIER/AFP/GETTY IMAGES

If you’re not getting a raise in 2016, the IRS has a teeny-tiny consolation prize.

The U.S. tax agency today announced a $50 increase, to $4,050, in the personal exemption, allowing taxpayers to shield just a little bit more income from the government on the tax returns they will file in early 2017. Low-income families with at least three children will be able to get a maximum earned-income tax credit of $6,269, up $27 from this year. However, the standard deduction for single taxpayers and married couples won’t change at all.

Many tax thresholds are tied to inflation, and that can cut both ways for taxpayers, depending on individual circumstances. Relatively steady prices mean that tax brackets are barely budging, so people with rising incomes Continue reading "Flat Wages? Here’s Your Consolation Prize From the IRS"

Energy Future Holdings chooses Hunt Consolidated plan

Energy Future Holdings has selected a proposal from a Hunt Consolidated Inc.-led consortium which will allow EFH and its subsidiaries to emerge from bankruptcy. The consortium includes Hunt, Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock, Centerbridge Partners, GSO, and the Teacher Retirement System of Texas. If approved by the bankruptcy court and regulators, Hunt will assume operational control of EFH’s regulated transmission and distribution company, Oncor Electric Delivery. Energy Future Holdings, the former TXU Corp., filed for bankruptcy protection in 2014. PRESS RELEASE DALLAS, Aug. 10, 2015 /PRNewswire/ — Hunt Consolidated, Inc. is pleased to announce today that Energy Future Holdings (EFH) has selected the proposal of its consortium (which includes among others, Hunt, Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock, Centerbridge Partners, GSO, and the Teacher Retirement System of Texas) as the plan to allow
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Trade Aid Package Renews a Pricey Health-Care Tax Credit

A pharmacist helps a customer at an Illinois pharmacy in 2013.
SCOTT OLSON/GETTY IMAGES
Overlooked in the debate over President Barack Obama‘s push on trade is a separate package of assistance for displaced workers, known as Trade Adjustment Assistance. This week’s Outlook column looks at the economic rationale behind such assistance. The TAA package would also renew a separate health-care tax credit, which expired at the end of 2013, that provides health insurance to workers with federal subsidies. If this idea sounds familiar, that’s because the Health Coverage Tax Credit, as it’s known, helped inform policy makers about how to cover uninsured Americans in what would later become the Affordable Care Act, or Obamacare. The problem, some economists say, is that the HCTC is costly to run and probably redundant now that Americans can purchase health care through exchanges set up under Obamacare. The latest bill would cover Continue reading "Trade Aid Package Renews a Pricey Health-Care Tax Credit"